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Knowledge Center » Finance & Investment » GOLD IN 2014

Indians were battered by almost every asset last year, be it equities, the currency, real estate or metals. Even the ‘safe haven’ gold gave negative returns of nearly -28 %( internationally), the first time there was an annual decline in more than a decade. It swayed from Rs 31,000/10 gm in the beginning of the year all the way down to Rs 25000/10gm and then back again to the Rs 30000/10gm mark. The domestic prices remain elevated because of the import duties and the currency fall. But it is expected that international gold prices will continue to fall in 2014, so for Indian investors, the INR will have to fall or duties will have to be raised.Factors that will affect the yellow metal‘s price: The price of gold will be determined by both global as well as domestic events. In January 2014, the US debt ceiling issue which was postponed from Sept will have to be tackled. This may increase the price in the short term. Also, in recent years investors have moved towards gold as it would act as a natural hedge against the rise in inflation which could be attributed to the Fed’s QE programme .Unwinding of this programme has already started, and any further ‘tapering’ in the stimulus measure may induce a selloff in Gold. Also, if economies start to pick up, investors may dump Gold for equities/alternate investments to increase returns. In India, policy changes regarding the duty/import on gold will remain the key factor. If the government continues to keep stringent measures, the price of Gold will remain high. Also, due to the elections in India, volatility  will increase which may prompt investors to go back to the safer asset for a short period of time.The demand for gold in India would continue to remain low in 2014 as long as the policies of the government continue to remain the same. For policies to be changed , the CAD will have to be fixed, which seems unlikely. The supply however, is expected to be higher as mined gold will be higher and supply from Asia, Latin America and Africa will increase.Overall, it is believed that the bull run in gold is over and prices will continue to move south. Also, the upside is limited as there are no positive factors that could take prices up. However, seasonal demand for gold as well as a possible depreciation in the INR will limit the losses Indian investors face, even though the volatility in the asset is expected to be high because of the various global factors that will be playing out.